Key Takeaways
- A tenure payment plan provides a fixed monthly check for the rest of your life.
- Payments continue even if the loan balance exceeds the home's value.
- It is an excellent way to supplement Social Security and pension income.
\n\nIf you are struggling to pay your monthly bills on a fixed Social Security income, a line of credit or a lump sum might not solve your primary problem: the need for predictable, ongoing cash flow.
For seniors in this situation, the Tenure Payment Plan is often the perfect solution.
What is a Tenure Payment?
A tenure payment turns your home equity into a synthetic annuity. Instead of giving you a lump sum, the reverse mortgage lender agrees to send you a fixed monthly check (e.g., $1,200) every single month for as long as you live in the home as your primary residence.
How is the Payment Calculated?
The amount you receive each month is calculated based on three factors: 1. Your Age: The older you are, the higher the monthly payment. 2. Your Home's Value: The more equity you have, the higher the payment. 3. Current Interest Rates: Lower interest rates result in higher monthly payments.
The lender's actuaries run these numbers assuming you will live to be 100 years old. They spread your available equity out over those projected years to guarantee the checks never bounce.
The Ultimate Guarantee
The most incredible feature of the tenure payment plan is the FHA guarantee.
Let's say you take out a reverse mortgage at age 65 and choose a tenure payment of $1,500 a month. You live a remarkably long and healthy life. By age 95, your loan balance has compounded massively and now vastly exceeds the value of your home.
The checks do not stop.
Even though you have zero equity left and your loan balance is mathematically underwater, the FHA insurance fund kicks in to continue making those $1,500 payments to you every month until you die or move out of the house. You can never outlive a tenure payment.
Drawbacks of the Tenure Plan
The primary drawback is inflation. The $1,500 check you receive today will have the exact same dollar value twenty years from now. While it feels like a lot of money today, inflation will slowly erode its purchasing power over the decades.
Additionally, because the lender assumes you will live to 100 to calculate the payment, the monthly check is often smaller than seniors expect. If you want a larger check for a shorter period, you should consider a Term Payment plan instead.\n